GM, QE3, and Crony Capitalism

Randall Holcombe at the Independent Institute writes a short blog post about the recent actions of the Federal Reserve and the Defense Department, and why they are cronyism:

It is hard to see the Defense Department’s purchase of the Volts as anything other than crony capitalism. Volts price out at $40,000 each, so that’s $60 million in government money headed toward GM. Is the Defense Department really being a good steward of taxpayer dollars by buying these cars?

The Fed is buying the products of the financial industry — the mortgage-backed securities — just like the Defense Department is buying Volts that are the product of GM. In both cases, the purchases are designed to increase the demand for a product the government wants to support, for the benefit of the producers of the product.